December Shipping Rates Decrease Year-Over-Year
Shippers finally caught a break in December, with year-over-year shipping costs decreasing for the first time in 28 months (Source: CASS Information Systems), despite the ongoing Israeli-Hamas conflict. More on that below. This decrease comes on the heels of 2022’s historic runup in freight charges by as much as 500% in some trade lanes and shipping modes. Overall decreases are attributable to a multitude of factors, including flagging consumer demand putting downward pressure on freight rates, decreased fuel costs, better managed inventories with less need for air freight, and a slowing world economy lessening overall demand. Current market fundamentals point to a firming of market demand and stabilization of prices by mid-2024. 

Ocean Shipping Remains Much More Affordable
Given the downward pressure on ocean pricing over the past 8 months, ocean shipping is more affordable than it has been in years. A proprietary index by FreightWaves that tracks bookings to the U.S. has been flatling for months, with no signs of a rebound soon. While a challenge for the steamship lines, the current market for ocean freight represents a real opportunity for companies to restock their summer and fall inventory at rock-bottom prices.

Container ships transiting the Suez Canal

Trucking Rates Remain Low
After a prolonged freight recession, there are some signs that the U.S. trucking market is beginning to see a modest rebound in both demand and pricing. This is due in part to a modest decrease in capacity as several large carriers exited the market in 2023. Carriers closing their doors included YRC and dozens of smaller, regional carriers. Nonetheless, rates remain well below historical averages with truckers heavily discounting some lanes. There are still significant savings to be had for shippers in domestic ground shipping.

Panama Canal Diversions Create Uncertainties
As if the Suez Canal crisis was not impactful enough, an ongoing drought in Panama has driven the Panama Canal’s water levels to new lows. This has resulted in a dramatic decrease in the volume of ships that can transit the canal. The drought is forcing steamship lines to either use a land-bridge strategy from Asia to the U.S. East Coast, relying on rail freight from the U.S. West Coast, or the more costly diversion around South America. Combined with the Middle East disruptions, these two events have the potential to disrupt global supply chains even more than the peak of COVID.

Just-In-Time Inventory Management Strategy Returning
The above canal disruptions notwithstanding, there are signs that companies are reverting to pre-COVID, just-in-time inventory management strategies, as supply chains become more stable. This change has decreased the demands on the supply chain, as inventories return to normal levels and seasonal buying patterns re-emerge. Whether this trend continues, in light of the canal issues and regional conflicts, remains to be seen.

China Slowdown
News coverage of the slowdown in China’s economy has been widespread, with a ripple effect seen in shipping worldwide. In addition, the recent resurgence of COVID in China has some analysts suggesting a decrease in worker productivity by as much as nearly 40%. Combined, these two factors have put downward pressure on demand and pricing for both air and ocean freight, with trans-Pacific rates in particular collapsing below pre-COVID levels in late 2023. When this trend will reverse itself is anyone’s guess. 

Speaking of China, this coming weekend ushers in the Chinese New Year (CNY) and Year of the Dragon. As it does every year, this week-long holiday in China results in factory closures and nationwide travel in China as workers return home to see family. The impact on shipping is predictable: An artificial, but temporary run-up in shipping rates as shippers struggle to get out of China before the shutdown, and an ensuing backlog for 1-2 weeks following the holiday. Savvy shippers have learned to plan around this holiday to avoid peak holiday pricing, and the weakened demand referenced above have mitigated the increases this year

Questions or comments? We’d love to hear from you!

Paige Cotcamp – President
Air & Surface Logistics
info@airandsurface.com
+1-714-573-1207